Graham Hill’s Advice On Preparing For Credit Part 3
Monday, 22. September 2014
OK, we are now on the final straight, I am now going to talk about the finance application itself. But before I discuss the content there is an overriding requirement on you to answer each question accurately, if you don’t and you are found out, then you could be considered to have acted fraudulently.
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I have searched everywhere and sought legal advice but can’t find anywhere that you are committing a criminal offence when providing incorrect information on a finance application – unless of course it was the result of identity fraud/theft, which is a criminal offence and will land you in nick for a fairly substantial time.
However, the industry has gotton around this issue of fraudulent applications by subscribing to something called CIFAS (Credit Industry Fraud Avoidance Scheme). If a lender suspects (with very good reason) or finds that you have committed any form of credit or insurance fraud they can enter your details on the CIFAS register which then also appears on your credit file for all lenders to see.
The information held is supposed to be considered advisory – alerting any potential lender to look at any application from this applicant more carefully. It can also protect you if it is known that someone has tried to make a false application by stealing your identity. They say that this is more address based than individual but I would take that with a pinch of salt!
The credit reference agencies (CRA) are not allowed to incorporate the CIFAS warning into the automated credit score nor is it to be considered to be ‘adverse’. Lenders should also not take into account CIFAS alerts when making a credit decision, simply carry out more checks on the applicant.
CIFAS goes to great lengths to explain that a CIFAS warning on your credit file won’t affect the decisions of lenders to agree a loan but in the real world if another lender has reported some fraudulent activity on your part it would certainly influence my decision if I was an underwriter and without doubt it will influence theirs.
If you are advised of a warning (you should be told before it goes on your file) or see it on your credit file, if you are not happy then write to CIFAS and the company placing the info. on your file. We are now onto the application having explained the importance of being honest. The next most important thing to do is to give as much information to the lender as possible.
You read a lot about your credit score with lots of advice surrounding your credit report, which I don’t disagree with, but just as important is a mysterious measure, used by all lenders, called the ‘Score Card’. It is the lenders’ score card that initially provides an instant acceptance or an instant decline when you make your finance application.
The problem is that the way each application is scored is so secret that often the underwriters don’t know how it is created but like the credit score on your credit file it is simply a load of points for different items on your credit application added together to form a numerical opinion of your credit worthiness.
Most lenders will have a risk committee who decide what points to award each item on the application but one thing is for certain if they don’t have the information they can’t give you a score so tell them everything. A good broker will be of great assistance as he will know which lender is most likely to approve your application. The cheap bucket shops will just propose you and hope you get through. If you don’t they often don’t have enough profit in the deal to waste time trying to get you through.
Reverting to an alternative funder or through another broker at this stage could well lose you the deal as each search on your file drops your credit score. When you complete your application form, either in handwriting or online make sure you answer every question and make it as easy as possible for the underwriting staff.
Don’t forget those that deal with your application are human beings and if they get frustrated because they can’t read your writing they may omit something that costs you enough points to result in a decline. Use capital letters and make sure your form can be read easily if completing the form manually. Each question is there for a reason so make sure you provide answers to every question. If you have middle names – show them. It helps when carrying out a credit search to find you.
Make sure that you put your correct date of birth and it is legible. These two pieces of information are used to generate a copy of your credit report and verify your current address. Most lenders now require 5 years of address history, don’t say you have been in your current address for 5+ years when you have only been there for 2 years.
They don’t just take your word, this is a verification process as they can see your address history on the voters roll with back links. If you have missed addresses it will cause concern. You should know that if a lender or leasing company is providing a very low APR or very cheap monthly lease rate they have shaved their margins so they will only accept those who are way up their score card.
Those offering higher APR’s or lease rates are more likely to consider applications from those with less than an absolutely perfect credit score. Searching out the very cheapest rate may not be the best thing to do unless you know your credit has been perfect over the last 6 years and that there are no late credit card payments or missed loan repayments or CCJ’s even if satisfied.
Having a great credit score does not mean you will automatically be approved when you make a credit application. Your credit score is based on historical events, your application uses statistics to determine whether you are likely to pay in the future. A few years ago lenders kept an open mind if you didn’t show up at your current or previous addresses as lenders would still record credit information against each of your addresses, irrespective of whether you were on the voters roll.
They would simply ask for proof that you were living at the current or previous address. These days, as the voters roll is much more accurate and is updated immediately rather than often weeks after you have moved, it is more important to make sure you are on the voters’ roll even if you have no intention of voting. Some lenders believe that if you are not on the voters’ roll it is for sinister reasons. Either you don’t want to be found or you are avoiding paying council tax, both of which would put off a lender.
One further point about your address, don’t make the job of the underwriter more difficult by only showing part of your address, omitting part of your postcode or leaving out your postcode altogether. This is often done when providing previous addresses – very irritating! Also, make sure that you show your full address, even though you have named your house Dunroamin, show the number of the property also as the name may not show up in the searches.
The form will ask if you have dependents? The secret is in the name so anyone who lives at your address who depends upon you to live is a dependent. Children or elderly relatives would be dependents as well as a wife who doesn’t work. People think this goes against you in terms of credit score but if anything it improves the score as you have responsibilities so you would take your income and commitments seriously. By the way as each lender is different I am basing what I am saying on information shared with me over the years by lenders, underwriters and leasing company directors.
As I mentioned earlier all lenders have their own set of rules and hence the reason why one company may decline you whilst another accepts you even though you have provided exactly the same information. So when it comes to dependents, having a few is more likely to work in your favour than against you.
The next question and one that is very misunderstood is address status. In other words, is your home owned, rented, living with parents etc. Owning your property will give you a few extra points but you don’t have to own your home for you to obtain credit. I recently funded a £100,000 Mercedes for a customer who lives in a rented property.
There are often times when there is no equity in a property and I have had clients who have sold a property at an amazing price and are taking their time to find a new place whilst living in rented accommodation in the meantime. Many people these days have invested in a holiday home or ‘buy to let’ property. It is advisable to let the underwriter know if you have additional equity sitting in other properties, this information can only add to the comfort given to the underwriter, especially when you are looking to fund an expensive car.
Now to the figures that you show on your application. Be very careful, whilst the underwriter may not place a great deal of reliance on the figures you provide they may ask for statements (mortgage/bank) to back them up and they also have access to data that will give an idea of property values in your area. Your mortgage details are also held on your credit file so make sure that when asked roughly what the value is of your property and what you have outstanding try to be as accurate as possible.
More important to lenders these days is your net income, some will even ask for a breakdown showing net income less your regular expenses. This is not the lenders being awkward, it is a result of the new ‘affordability rules’ imposed upon them when considering an application by the new FCA (Financial Conduct Authority). Be careful because they may ask for last 3 months bank statements or your last P60 and you don’t want either to prove that you are lying about your salary.
Also, if your income is made up of several sources such as a job but also rental income on a buy to let property, pension, annuity etc. make sure you let the lender know. Unfortunately if you use a bucket shop they won’t have time for this which could lose you a great deal.
Marital status is not so clear cut these days as more people find it beneficial not to be married to their partner for tax reasons as well as financial and practical reasons.
Whilst you may still gain a few points for being married or in a civil partnership over being single/divorced/separated it will be minimal but could make all the difference when applying for the cheapest deal where the credit bar is set very high.
Your occupation is a big points winner or loser on your application and yet applicants, as well as some brokers/dealers either treat the question with contempt or for some strange reason consider it an intrusion.
One of the worst job titles used on applications is Consultant because you could be a consultant surgeon or something very obscure like (and I have seen this) a consultant tree hugger. Whilst I don’t know the way that these titles would be scored the chances are that the title consultant will simply attract the lowest score whilst a consultant brain surgeon is likely to be close, if not top of the scale. So make sure that you are specific about your job title. Points are awarded as a result of statistics and the perceived security of the type of employment.
Make sure that whilst your job is rarely checked you describe your job accurately. You will also need to give 5 years job history, again, like moving home, if you move jobs frequently this will drop your score as will periods of unemployment. Beware, if you show yourself as being in full time employment over the last 5 years but you have put information to the contrary on LinkedIn or Facebook there is a vague chance that you could be caught out.
Your bank details need to be accurate and there are various checks that lenders can carry out to ensure that the bank account given is accurate, after all they will be taking direct debits out of this account so need to know that it exists and its status. If your account is in joint names then make sure that you say that on the application and the time with the bank can score an extra point or two with some lenders if you have been with them for a while so if you have been with the same bank for 20 years say so.
Finally we are onto employer details. Lenders have started taking more notice of the company you work for when underwriting. In the past if you have been a director of a company they have always checked out the strength of the business but with the new affordability rules forcing the lenders to take more care more lenders are taking a closer look at the strength of the business and if it looks as though it is on the brink of collapse they are as likely to decline you.
Depending on the size of the deal some will carry out a telephone check so make sure that you include their telephone number. They may even try to speak to you at work on the premise that they are checking details when in fact they want to know that you are working where you say you are (very common with mortgage applications). They are not trying to find out how good you are at your job or whether you were sacked from a previous job, they just want to confirm the information on your application.
In the past a director of a company that has been struggling has put his title down as General Manager or just Admin Manager to avoid having a search on the company but many of the lenders are more diligent these days. So there you have it, answer all the questions on the application form. Be honest and make sure that the form is legible.
Oh and don’t make the mistake that one applicant made, not one of mine of course, he was a plumber and some of his income was cash in hand and didn’t go through his bank. He had a car and a van but wanted to get a car for his wife. He knew that he could afford it but due to his cash business he knew that his bank statements wouldn’t reflect his true income so he said that the car he was getting was a replacement commitment for his own car, a note was made on his application.
As a result the deal was accepted with the condition that the finance company had proof that the finance on his current car was settled – caught out trying to be too clever. On the other hand if the new car is a genuine replacement then tell the finance company/broker/dealer this will help your application. By Graham Hill
